August 27, 2009 - RANCHO PALOS VERDES -- The tide has
turned rough for Terranea Resort, the $480-million oceanfront project
some 12 years in the making. While there still are high hopes for the
resort's success, there is speculation that it may soon head into
foreclosure.

More than two months since opening, the Federal Deposit
Insurance Corp. opened Terranea's primary lender, Chicago-based Corus
Bankshares, for bids due on Sept. 3. Next, the Rancho Palos Verdes City
Council rescinded a transient occupancy tax agreement that would have
provided the resort with an 80-percent rebate of up to $8.2 million
during a 34-month period because its lenders prevented it from opting
in. News broke last week that Terranea's "mezzanine," or second-tier,
lenders -- a group that includes Microsoft billionaire Bill Gates'
Cascade Investment LLC -- on Aug. 11 filed a notice of default with Los
Angeles County for its $110-million loan to the resort.

Now, the talk of the town has become what all this means for
the future of the luxury resort, which boasts a 360-room hotel,
nine-hole golf course, spa, pools and restaurants.

Some maintain that Terranea Resort is here to stay, even
during this time of economic uncertainty.

"The fundamental truth of it, I believe, is this new
centerpiece resort in our community is going to be here for the next
100 years," Mayor Larry Clark said. "There will obviously be some
changes in the financing of it, and there may even be some changes in
ownership. But the fact of the matter is, it's a resounding success as
a destination resort for people from throughout our region, country and
the world, and a tremendous public-serving amenity for our community --
and it will continue to be."

According to Clark, the notice of default doesn't affect
Rancho Palos Verdes.

The city currently is gaining 100 percent of the TOT, which
amounts to more than $400,000 in July and August, for use in the
general fund. (A TOT is levied on guests staying in hotels, motels and
inns less than 30 days; cities and counties are authorized to collect
the "hotel bed" tax through an ordinance passed by the county's board
of supervisors).

Bruce Galloway, a real estate attorney who helped Rancho Palos
Verdes negotiate the thwarted TOT rebate, said the notice of default
essentially is the first step in foreclosure and could happen within
130 days.

The notice legally has to be filed, and thereby starts a
timeframe running, "but it doesn't necessarily lead to a foreclosure,"
explained Bob Lowe, CEO and chair of Lowe Enterprises, which oversees
Terranea owners Long Point Development Partners. "The mezzanine lenders
took that action to protect its position in the property."

The resort isn't in default on any of the payments to the
mezzanine lender, he said.

Asked if the resort will foreclose, Lowe responded, "There's
no plans whatsoever one way or the other."

The notice of default doesn't change Terranea's operations in
the meantime, Lowe said, or the ongoing conversations with both
lenders.

"We're working in a constructive manner with both lenders in a
manner to try and resolve this for the betterment of Terranea ... Our
hope is that the current ownership, under our management, continues to
own and operate the hotel long-term," Lowe said. "That's what we're in
discussion with the lenders about -- how to resolve the problems with
the first trustee lender and move forward in a positive way."

Terranea is up to $322 million in loans, including $180
million from Corus. Lowe said the resort's partners and lenders are
examining the best way to restructure the capital on the debt going
forward.

Others aren't as optimistic that the situation will improve.

RPV resident Mark Wells, who chided council on Aug. 18 for
pursuing the TOT rebate, said while he hopes to see the resort survive,
the signs point otherwise.

"My prediction is that the resort will close sometime between
the beginning of October and the end of February," Wells said, "or that
the management will change. I don't see Mr. Lowe staying in charge of
this, and having it stay open much longer. I think the combination of
the failure of Corus Bank and the foreclosure that Bob is going through
with his mezzanine lenders is an indication that times are tough, and
it doesn't look like it's getting much better for the resort industry."

According to Lowe, the other Lowe Enterprises properties
throughout the country are doing "a little better than average" than
the industry, with revenues down 15 to 20 percent varying by location.

However, Lowe said things may start looking up for the hotel
business.

"If the economists are correct, that we hit the bottom and
will see a gradual turn around in the economy, that will lead to
gradual improvement in the hospitality industry, which could become
pretty significant by this time next year," he said.

aratcliff@pvnews.com

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